The commission's report said residents had voiced concerns that the revised plans, which included the 24-storey tower, would cause over-shadowing and traffic problems in the area.

“The commission acknowledges the cultural significance of the development site to the local [Aboriginal and Torres Strait Islander] community,” the commission's report said.

The Block, opposite Redfern train station, is in the midst of a transformation. Credit:Penny Bradfield

“The commission also acknowledges the community’s concerns raised at the public meetingregarding the need to ensure continued housing for [Aboriginal and Torres Strait Islander] peoplewithin the development site and the potential social impacts of the student accommodation.”

However, the panel found that the proposed development "will not substantially alter the impact of the Pemulwuy development on the neighbourhood, from that of the approved development".

“The commission considers that the proposed development provides an opportunity for urban renewal to respond to the area’s emerging urban context."

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In October, the Department of Planning warned it had not been shown concrete evidence that the 62 affordable homes promised for Indigenous families would be part of the $70 million development.

City of Sydney Lord Mayor Clover Moore on Monday said the project would "deliver 62 affordable homes for local Aboriginal people, and a minimum of 110 beds for Aboriginal and Torres Strait Islander students". Cr Moore said that she was "excited to see this project finally become a reality".

Newtown Greens' MP Jenny Leong said the state government should invest in public housing for Indigenous residents in the Redfern area without making it contingent on private development.

"We will literally see the Aboriginal housing on The Block overshadowed by large-scale student accommodation," Ms Leong said.

"What is unknown is how long will this remain student and affordable housing? How will any of that be regulated or monitored, and how long into the future?"

The approval of the revised plans signals a significant step forward in the transformation of the precinct, which has been slated for redevelopment by the Aboriginal Housing Company (AHC) for nearly three decades.

Those plans have been repeatedly delayed by setbacks and changes, and surrounded by controversy.

For more than a year an Aboriginal tent embassy occupied the grassed area in front of The Block's Aboriginal flag mural to protest the gentrification of the area and the erosion of its Indigenous links.

The protesters accused the AHC of prioritising the project's commercial aspects over the promise to build homes for Indigenous families.